Under the cargo handling contract, AMR performed the "hands-on" control and management functions related to cargo handling services at the Building 75 facility on behalf of SCAC. Appended to, and part of, the cargo handling contract is a special attachment denominated as "Exhibit JFK," dated September 1, 1988, covering the specific "ground handling" services AMR contractually agreed to perform as agent of SCAC at JFK.

Of pivotal concern in this case is clause 2 of the cargo handling contract, an indemnifying agreement. Also of significance in the cargo handling contract for purposes of this litigation is clause 3 of the appended "Exhibit JFK" providing for a limitation or cap on AMR's "freight liability." The disputes between the parties arising out of the indemnification and freight liability limitation clauses are discussed infra.

A shipment of 43 cartons of leather goods having a value of $ 160,833.23 was consigned by Ideal Cuir ("Cuir"), Paris, France, to Horizon. Cuir delivered the goods to its air freight forwarder SCAC Air Service for carriage by air via Trans World Airlines ("TWA") to New York and delivery to the consignee Horizon.

SCAC Air Service issued its air waybill No. 591962, dated June 14, 1989,
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naming as clearing agent at JFK third-party defendant, SCAC. That air waybill made no reference to limited liability pursuant to the Warsaw Convention, a Convention for the Unification of Certain Rules Relating to International Transportation by Air, 49 Stat. 3000-3026 (1934), TS No. 876, 137 L.N.T.S. 11, reprinted at 49 U.S.C. § 1502 (1976), adopted in 1929 ("Warsaw Convention"). However, in lieu the Warsaw limitation of liability, the air waybill contained SCAC Air Service's own contractual limitation of liability, discussed infra.

The shipment of leather goods was consolidated by SCAC Air Service and transferred to TWA for transportation from France to JFK. Upon arrival at JFK on Friday, June 16, 1989, AMR's trucker picked up the shipment (subsequently found to be one piece short) and delivered the 42 cartons to Cargo Building No. 75, wherein the goods were stored in a locked cage located inside AMR's Container Station Annex, part of AMR's customs bonded warehouse operations at JFK.

On Monday, June 20, 1989, when Sarcona Trucking came to the warehouse to pick up the goods for delivery to the consignee, they could not be found. As previously mentioned and discussed infra, the 42 cartons had been stolen from the warehouse.

Travelers paid its insured, Horizon, the value of the goods, $ 160,833.23, and thereafter, in 1991, as Horizon's subrogee, commenced this action against only AMR to recover damages for the loss of the goods.
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Travelers' action against AMR was settled and dismissed in March 1995 upon AMR's payment to Travelers of $ 113,000, after giving notice to SCAC. AMR impleaded SCAC by third-party complaint. SCAC has consistently disclaimed any liability to AMR for the theft of the goods.

At the time warehouse space in Building No. 75 was leased by SCAC, apparently the storage facility provided no central alarm system. Although not required by the terms of the cargo handling contract, SCAC arranged for the installation of a central alarm system for the warehouse, for certain related security services, and for installation of a "high-value" security cage inside the warehouse, which cage was locked with a keyed padlock and monitored by a motion detection system. The cargo handling contract does not expressly impose, and is completely silent with respect to, any duties or obligations on either party regarding security at the warehouse.

Further, although not required to do so by the cargo handling contract, AMR arranged for its already existing U.S. Customs Bond to extend to SCAC's storage facility in Building No. 75, and to operate such facility as AMR's bonded Container Station Annex. As previously disclosed, Gerold was AMR's Operations Supervisor at the warehouse at the time of the theft of the goods (and through April, 1992), and is a pivotal actor in this case.

Regarding security, prior to the date of the cargo handling contract, November 11, 1988, but following the retroactive effective date of that contract, September 1, 1988, SCAC entered into a "CONTRACT FOR BURGLAR ALARM," dated October 12, 1988, with SEI, an independent security company. Under that contract, SEI agreed to install, maintain, monitor, and generally take charge of the security services at the warehouse, including a central alarm system, armed patrol and response. The contract scheduled the installation of a central alarm system to commence on October 10, 1988. It is stressed that during its contract with SEI, SCAC assumed no supervision or control over SEI in the installation, maintenance, or monitoring of the security system. Indeed, under the contract, SCAC was expressly prohibited from disturbing or interfering with the alarm and from permitting anyone else (other than SEI, of course) to do so.

A critical feature of the security system at the warehouse was the central alarm system. So far as pertinent, the alarm system operated as follows:

Upon entry into or exiting from the warehouse, the alarm was disarmed and rearmed by pressing numbers on a pressure-sensitive keypad located outside the building. For such purpose, authorized employees each had a numbered personal user code. SCAC's Vice President, Bernacki, informed SEI of the employees who had been designated to have personal user code numbers, including AMR employees.

According to Bernacki's March 30, 1994 deposition, p. 50, Gerold's June 30, 1991 deposition, p. 22-23, and Castellano's March 26, 1992 deposition, p. 20, authorized employees selected a personal user code number and in the presence of an SEI employee who put the system in a "program mode," the number selected by the employee was electronically programmed into the alarm system. Gerold was authorized to have an access code. Bernacki and his manager at SCAC also had user codes, "purely as an emergency" and "backup." Bernacki dep., p. 51. Additionally, authorized persons, including Gerold, were issued a key by Bernacki to open the padlock on the high value security cage.

The purpose of a user code was to permit authorized access to the building, and to identify the specific employee entering and exiting the building. Upon entries to and exits from the warehouse, code numbers were electronically recorded along with the date and time.

To recover indemnification of its loss to Travelers for the alleged negligence of SCAC, AMR had to allege and prove that SCAC owed a duty to the primary plaintiff (viz., Travelers as subrogee of its insured), and that such duty was breached. Kemron Environmental Services, Inc. v. Environmental Compliance, Inc., 585 N.Y.S.2d 475, 184 A.D.2d 755 (2d Dept. 1992).
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For the existence of a legal duty on SCAC to provide security, AMR cites Jacobs v. Helmsley-Spear, Inc., 469 N.Y.S.2d 555, 121 Misc. 2d 910 (N.Y.C. Civ.Ct. 1983), a personal injury action by a tenant against the landlord for a robbery committed against the tenant by a third person. There, the court found that the landlord had breached its duty to protect the tenant from foreseeable dangers by failure to repair an electronic door lock on the premises. In holding the landlord liable to its tenant for the robbery committed by a third person, the court found the landlord's failure to repair the door lock to be a breach of duty to the tenant and the proximate cause of the robbery. Thus, it appears that to establish a duty on SCAC, AMR relies on the well established duty of a landlord of a residential building to protect its tenants against foreseeable dangers (i.e., criminal acts of third persons) by providing proper security at the premises.

Under clause 2, in the context of "claims, liabilities, loss damages, costs, attorney's fees or expenses, it is obvious that even if a comma were inserted and read as "loss, damages," etc. as claimed by AMR, in the particular context the term "loss" means monetary loss (not loss of property) and "damages" refers to monetary damages (not physical damage to property). On the other hand, it is clear that in the context of the subsequent reference in clause 2 to "by reason of damage to property," the term "damage" is used in its ordinary sense of physical damage or injury to property. Thus, construing the two phrases together and clause 2 as a whole, the clause provides indemnification for financial "loss" or "damages" by reason of physical damage to property.

Hence, while the meaning of the terms "loss" or "damages" may be ambiguous when read in isolation, their intended meaning in clause 2 is very clear from the particular contexts in which the terms appear and a reading of the clause as a whole. Cf. St. Paul Ins. Co. of Illinois v. Venezuelan Intern. Airways, Inc., 807 F.2d 1543, 1549 (11th Cir. 1987) (under an air waybill "damage" should mean only "physical damage"). Therefore, the court agrees with SCAC that AMR's "loss" or "damages" (i.e., payment to Travelers of $ 113,000) was not incurred "by reason of damage to property."

Additionally, SCAC relies on the well-established distinction in the transportation industry of "loss" of goods and "damage" to goods, citing Schwimmer v. Air France, 384 N.Y.S.2d 658, 87 Misc. 2d 147 (Bronx Civ.Ct. 1976) ("damage is damage and loss is loss"), which case was cited and followed by the Second Circuit Court of Appeals in Denby v. Seaboard World Airlines, Inc., 737 F.2d 172, 186 (2d Cir. 1984), wherein Judge Friendly observed that "it does much less violence to the language to say that 'loss' means all kinds of loss and that damages means only physical damage."). Relative to the application of the terms at issue in the freight transportation trade, SCAC also cites to Interstate Commerce Commission regulation 49 C.F.R. § 1005.1, establishing different time-frame standards for the disposition of claims for loss, damage, injury or delay.

AMR also argues that because of the limitation of freight liability
*fn8"
and the particular relationship of the parties under the cargo handling contract, SCAC Air Service's omission of the customary Warsaw Convention limitation of liability in its air waybill constituted a breach by SCAC of its "fiduciary duty" owed to AMR. Citing Filner v. Shapiro, 633 F.2d 139, 143 (2d Cir. 1980), citing Kirke LaShelle Co. v. Paul Armstrong Co., 263 N.Y. 79, 87, 188 N.E. 163 (1933), for the rule that an implied covenant of good faith "precludes each party from engaging in conduct that will deprive the other party of the benefits of their agreement," AMR further posits that the omission of the limitation of liability in the air waybill also constitutes breach of an implied duty of good faith and fair dealing owed by SCAC to AMR. See also Zilg v. Prentice-Hall, Inc., 717 F.2d 671 (2d Cir. 1983), cert. denied, 466 U.S. 938, 80 L. Ed. 2d 460, 104 S. Ct. 1911 (1984).

Inasmuch as both AMR's claim of breach of fiduciary duty and claim of breach of an implied covenant of good faith dealing revolve around the omission from the air waybill of the Warsaw Convention's limitation of liability, those claims although based on distinct legal theories will be discussed together as essentially the same cause of action.

The Warsaw Convention for Unification of Certain Rules Relating to International Transportation by Air, 49 Stat. 3000-3026 (1934), T.S. No. 876, 137 L.N.T.S. 11, reprinted at 49 U.S.C. § 1502 (1976). was adopted in 1929. The United States became an adhering nation in 1934. 78 Cong. Rec. 11582, 49 Stat. 3013. See Trans World Airlines v. Franklin Mint Corp., 466 U.S. 243, 277, 80 L. Ed. 2d 273, 104 S. Ct. 1776 (1986); Denby, 575 F. Supp. at 1137. Clause 22(2) of the Warsaw Convention limits the carrier's liability to 250 francs or 17 SDR per kilo, which at the pertinent period of time corresponded to a $ 20.00 per kilo limitation of liability. Carriers' standard limitation of liability for international carriage reads: "Carriage hereunder is subject to the rules and limitations relating to liability established by the Warsaw Convention unless such carriage is not 'international carriage' as defined by that Convention."

Citing to Royal Ins. v. Amerford Air Cargo, 654 F. Supp. 679, 681-82 (S.D.N.Y. 1987), AMR insists that it was an agent of the freight forwarder (SCAC Air Service), and had the air waybill included the customary Warsaw Convention limitation of liability,
*fn9"
both SCAC and AMR as agents of the freight forwarder (treated as a "carrier") would likewise have been protected by such limitation of liability in the air waybill.

AMR maintains that SCAC Air Service (which used the IATA logo on the face of its air waybill, giving the impression that it was an IATA air carrier), "acted in bad faith deliberately taking away a bargained for advantage of the Ground Handling Agreement" (third-party pltf.'s supp. mem., p. 11) by using the IATA logo while omitting the organization's standard IATA air carrier's Warsaw Convention limitation of liability from the air waybill.
*fn11"

In sum, AMR contends that at time it entered into the cargo handling contract limiting its freight liability to SCAC, it intended and had a good faith expectation that AMR's liability to third persons would be similarly limited in accordance with the Warsaw Convention by the customary terms imprinted on the carriers' air waybill. By omission of such terms in the air waybill, SCAC breached its fiduciary duty to AMR and its covenant of good faith dealing implied by the limitation of freight liability under the cargo handling contract.

Even assuming that AMR, acting as SCAC's cargo handling agent and warehouseman, would have been afforded limited liability to third persons by inclusion of the Warsaw Convention limitation of liability in the air waybill, no legal authority has been called to the court's attention establishing that the limitation of SCAC's freight liability under the cargo handling contract created a fiduciary relationship or implied obligation on SCAC with regard to the contents of the air waybill. There is no evidence that in issuing air waybills, the French corporation acted as SCAC's alter ego or agent or otherwise was under the control of SCAC.

Moreover, there is no evidence that prior to or contemporaneously with the execution of the cargo handling contract there was any discussion between the parties or conduct by SCAC that remotely implies SCAC intended to assume a fiduciary duty or obligation of good faith to complement AMR's limited freight liability under the cargo handling contract with limited liability to third persons under the air waybill. Rather, with regard to AMR's liability exposure to third persons arising out of performance of the cargo handling agreement, the parties bargained for an obviously detailed mutual indemnifying agreement under which AMR would be held harmless against third person claims arising out of personal injury or damage to property, including even claims attributable wholly to negligence.

IV.

While air waybill No. 591962 issued by SCAC Air Service concededly did not mention the Warsaw Convention limitation of liability, SCAC stresses that the air waybill did in fact contain a 4500 franc per carton or 50.000 franc ($ 10,000) per shipment limitation of liability, which AMR could have, but failed, to raise in defense of Travelers' suit against AMR. Therefore, argues SCAC, AMR having failed to interpose the limitation of liability provision under the air waybill to Travelers' claim, AMR should now be held estopped to claim over by way of indemnification against SCAC.

In view of the result reached herein, the court need not decide the validity of the limitation of liability in the air waybill, or whether or not the limitation of liability in the air waybill might have been successfully raised against Travelers by AMR, or the estoppel issue.

CONCLUSION

For the reasons expressed above, SCAC has no liability to AMR for indemnification, implied or contractual, or for breach of fiduciary duty or an implied covenant of good faith dealing under the cargo handling contract. The third-party complaint is dismissed, and the Clerk is directed to enter a judgment accordingly.

Dated: New York, New York

March 14, 1996.

Bernard Newman, U.S.D.J. by

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